The Capital Markets Union-related package of measures put forward by the European Commission yesterday included, as expected, proposals for targeted updates to EMIR.
With the overarching aims of encouraging clearing in the EU, improving the attractiveness of EU CCPs, and reducing reliance on third country CCPs, the draft proposal to amend EMIR requires firms subject to the clearing obligation to clear at least a portion of certain systemic derivatives through active accounts at EU CCPs. The Commission has indicated that those derivatives will be those already identified by ESMA as being of substantial systemic importance for the financial stability of the EU or one or more of its Member States i.e. interest rate derivatives denominated in euro and Polish zloty, credit default swaps, and short-term interest rate derivatives denominated in euro
It appears that the obligation to clear those specific derivatives through an EU CCP will be capable of being met directly (via accounts opened directly at an EU CCP) or indirectly (through a clearing member). Additional details will be set out in regulatory technical standards. ESMA will be tasked with calibrating the required activity levels, and the Commission will be able to amend the list of in-scope derivatives from time to time, following assessments by ESMA.
Other proposed changes to EMIR would simplify the procedures for CCPs when launching new products and changing risk models (a non-objection approval will apply in certain cases) and further enhance the existing supervisory framework to make EU CCPs more resilient.
Certain equivalence-related provisions may also be amended by deleting the equivalence decision condition to benefit from intragroup exemption. The Commission would also like to be able to take a more proportionate approach when adopting an equivalence decision for a third country by waiving the requirement to have an effective equivalent system for recognising third-country CCPs.
The above are some of the key proposed changes, but there are others including plans to deal with the disadvantageous prudential treatment that insurers face if they become a direct clearing member.
Additional information is set out in the Communication from the Commission and the Commission’s Questions and Answers on the Commission's new proposals to make clearing services in the EU more attractive.
To discuss any of the above in more detail, please get in touch with Phil Cody of our Derivatives, Treasury and Market Infrastructure Group.
",,,following the withdrawal of the United Kingdom from the EU, the vast amounts of euro-denominated contracts cleared at UK CCPs entail risks for the EU financial stability and for the transmission and conduct of the EU’s monetary policy. Building robust clearing capacity in the EU reduces the risks stemming from excessive exposures to third-country CCPs"